Case 3:17-cv SK Document 60 Filed 05/25/18 Page 1 of 38 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

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1 Case :-cv-00-sk Document 0 Filed 0// Page of UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA MARTIN CALVILLO MANRIQUEZ, et al., Plaintiffs, v. ELISABETH DEVOS, et al., Defendants. Case No. -cv-00-sk ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF S MOTION FOR PRELIMINARY INJUNCTION Regarding Docket No. Plaintiffs move the Court for a preliminary injunction returning to the status quo ante by requiring the Department of Education to process certain non-discharged federal student loan debt in accordance with the Corinthian Job Placement Rate Rule. Defendant Elisabeth Devos, Secretary of the Department of Education (hereinafter Secretary ) opposes the motion. Having considered the parties papers, relevant legal authority, and having heard oral argument, the Court GRANTS IN PART and DENIES IN PART Plaintiffs motion. FACTUAL BACKGROUND A. Regulatory Background. The Department of Education (the Department ) is responsible for overseeing and implementing Title IV of the Higher Education Act of ( Higher Education Act ) U.S.C. 0 et seq., including the William D. Ford Direct Loan Program ( Direct Loan Program ), U.S.C. a et seq., which provides loans ( Direct Loans ) to borrowers for use at participating institutions of higher education. (Dkt., at page.) The Higher Education Act allows borrowers to seek cancellation of their Direct Loans based on a school s misconduct and directs that the Secretary shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under this

2 Case :-cv-00-sk Document 0 Filed 0// Page of part[.] U.S.C. e(h). In, the Secretary promulgated a regulation that permits a borrower to assert as a defense to repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law. C.F.R..(c)(). The regulation, also known as the borrower defense rule, relieves the borrower of the obligation to repay all or part of the loan and associated costs and fees. The regulation further provides: If the borrower s defense against repayment is successful, the Secretary notifies the borrower that the borrower is relieved of the obligation to repay all or part of the loan and associated costs and fees that the borrower would otherwise be obligated to pay. The Secretary affords the borrower such further relief as the Secretary determines is appropriate under the circumstances. Further relief may include, but is not limited to, the following: (i) (ii) (iii) C.F.R..(c)(). Reimbursing the borrower for amounts paid toward the loan voluntarily or through enforced collection; Determining that the borrower is not in default on the loan and is eligible to receive assistance under title IV of the Act. Updating reports to consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower s Direct Loan. The loans that are the subject of this litigation were issued pursuant to a Master Promissory Note, which states that the borrower may assert a defense against collection of the loan, if the school did something wrong or failed to do something that it should have done, provided that the school s act or omission directly relates to [the] loan or the educational services that the loan was intended to pay for, and if what the school did or did not do what would give rise to a legal cause of action against the school under applicable state law. (Dkt. -, at, Ex., at page.) A memorandum from James Runcie, the Chief Operating Officer of the Federal Student Aid office of the Department, dated June,, states: Prior to, the borrower defense identified above was rarely asserted by any borrowers and no specific methods of collecting information regarding borrower defense claims had been defined or found necessary. (Dkt. -, Ex., at page.) According to the Department s Office of Inspector General s report dated December,, from July, through June,, the Department received only five

3 Case :-cv-00-sk Document 0 Filed 0// Page of borrower defense claims. (Dkt. -, Ex., at page.) B. Corinthian Colleges. Corinthian Colleges, Inc. ( Corinthian ) was a for-profit college chain, operating under the brands Everest, Heald, and WyoTech. (Dkt. -, Ex., at page.) At its peak in 0 and, Corinthian operated over 0 campuses in states, enrolled over,000 students and collected over $. billion in revenue, over 0% of which was in the form of student loans provided under the Direct Loan Program. (Id., at page.) The Corinthian schools included different campuses for a wide variety of subjects. For example, Corinthian schools included Heald Concord Accounting, Heald Fresno IT Network Systems, Everest Los Angeles Wilshire Dental Assistant (Diploma), and WyoTech Long Beach Plumbing Technology (Diploma). (Dkt. -, Exs. -.) In January, the Department sought data supporting Corinthian s advertised job placement rates. (Dkt. -, Ex., at page.) Corinthian refused to provide the data, and in June, the Secretary placed Corinthian on a heighted cash monitoring status. (Id.) In July, the Secretary and Corinthian entered into an operating agreement, pursuant to which Corinthian would cease operations by teaching out at least a dozen of its campuses and by selling as many of the rest of the schools as possible. (Id.) The Secretary also appointed a monitor to oversee Corinthian s operations and its wind-down activities, including federal student aid draws, expenditures (including refunds required under the operating agreement), and [Corinthian s] compliance with its obligations to the Department. (Id.) In March, after Corinthian failed to file audited financial statements, the Secretary requested a letter of credit from Corinthian. (Id., at page.) In April, the Secretary determined that Corinthian made false statements about its placement rates and issued a fine against Corinthian in the sum of $0 million for substantial misrepresentation under C.F.R..-. (Dkt. -, Exs. -; Dkt. -, Ex..) Specifically, the Secretary found that Corinthian published falsely inflated job placement rates for programs at its Heald College locations. (Dkt. -, Ex..) Corinthian closed its colleges in April, and students who had borrowed federal

4 Case :-cv-00-sk Document 0 Filed 0// Page of student loans to attend a Corinthian program asserted their rights to cancellation of their loans under the borrower defense rule and terms of the Master Promissory Notes. (Dkt. -, Ex., at pages -.) C. The Secretary s Response to the Collapse of Corinthian. Faced with the collapse of Corinthian and over 0,000 borrowers with potential borrower defenses, Under Secretary Ted Mitchell ( Under Secretary ) of the Department appointed a special master ( Special Master ) to help the Department develop the processes and systems needed to provide relief to borrowers who had relied upon false and misleading statements from certain career colleges, including Corinthian. (Dkt. -, Ex., at page.) The goal of the Special Master was to develop a system for providing debt relief that was fair, transparent, and efficient, with a minimal burden on borrowers. (Id.) In June, the Secretary requested that the Office of Management and Budget grant emergency approval of an attestation form, waiving the requirement for public notice in the Federal Register. (Dkt. -, Ex., at page.) It appears that the Office of Management and Budget granted approval, as the Secretary disseminated the attestation forms and set up a process to review claims and to provide expedited relief for certain Corinthian borrowers. (Dkt. -, Ex..) The attestation forms advise borrowers of Corinthian s publication of misleading job placement rates and the location of a website containing two lists of covered programs and dates of enrollment covered by the attestation (the Lists ). (Dkt. -, Exs.,,,.) The Lists include names of schools and dates of enrollment from to. (Dkt. -, Exs.,.) For example, borrowers listed in the examples above were eligible for relief under the Corinthian Rule only if their first dates of enrollment were as follows: () Heald Concord Accounting after February, ; () Heald Fresno IT Network Security after July, ; () Everest Los Angeles Wilshire Dental Assistant (Diploma), between July, and September 0, ; and () WyoTech Long Beach Plumbing Technology (Diploma) between July, and September 0,. (Id.) The attestation forms state that borrowers should submit the forms only if their programs and dates of enrollment are included on the Lists. (Dkt. -, Exs.,.) In the case of a borrower who attended a Heald program on the Lists, the attestation form

5 Case :-cv-00-sk Document 0 Filed 0// Page of states as follows: I am submitting this attestation and additional materials in support of my application for a borrower defense to repayment discharge of my Direct Loans under C.F.R..(c).. I believed that the job placement rates related to my program of study indicated the level of quality a Heald education offered to students. I chose to enroll at Heald based, in substantial part, on the information I received about job placement rates related to my program of study and the quality of education I believed those placement rates represented. (Dkt. -, Ex..) The combined attestation form for the Everest and WyoTech programs is identical to the attestation form for the Heald program attestation form but substitutes the names of Everest and WyoTech for Heald. (Dkt. -, Ex..) On March,, the Special Master reported that he had reviewed claims from borrowers and recommended to the Under Secretary that full relief (including restitution of all amounts paid) be provided for [certain] loans. (Dkt. -, Ex., at page.) Such loans included programs at Heald, Everest, and WyoTech. (Id.) D. The Department s Actions in Relieving Debt before January,. The Department reached out to borrowers who were potentially eligible for discharge of their loans under the borrower defense rule by electronic mail and postal mail. (Dkt. -, Ex., at pages -.) The outreach was to 0,000 Everest and WyoTech students and over,000 Heald students. (Id.) The Department received, claims between June, and January, and reviewed and discharged, claims. (Dkt. -, Ex., at page.) In October, in response to the claims resulting from the collapse of the Corinthian colleges, the Secretary announced the final regulations, which were scheduled to take effect on July,. The regulations established a new federal standard for borrower defenses and limitations periods for loans disbursed on or after July,, but also included a separate provision for those loans disbursed prior to July,. Fed. Reg. -0 (November, ). According to the revised, proposed regulation, C.F.R..(c), the borrower U.S. Department of Education: (last visited May,.)

6 Case :-cv-00-sk Document 0 Filed 0// Page of defense rule for loans made before July,, provides a borrower defense for: any act or omission of the school... that would give rise to a cause of action against the school under applicable State law, and includes one or both of the following: (i) A defense to repayment of amounts owed to the Secretary on a Direct Loan, in whole or in part. (ii) Fed. Reg. 00. A claim to recover amounts previously collected by the Secretary on the Direct Loan in whole or in part. Plaintiffs claim that, before January,, there was a Corinthian Job Placement Rate Rule (the Corinthian Rule ). on the following determinations: According to Plaintiffs, the Secretary based the Corinthian Rule () California is the applicable state law for purposes of determining whether there is a cause of action against the specific Corinthian school under C.F.R..(c)(); () Corinthian misrepresented its job placement rates at specified campuses, regarding certain programs, during enumerated periods of time; () Any Corinthian borrower who submits a simple attestation form provided by the Department or otherwise submits sufficient information to establish a membership in a certain group establishes a borrower defense; and () The Department will provide relief under California law by cancelling all outstanding amounts on related loans and returning any money collected by the Department. (Dkt., at pages -.) According to Plaintiffs, the Corinthian Rule covers 00 Heald programs between -, for the benefit of at least 0,000 borrowers, and 00 Everest and WyoTech programs in over twenty states, with,000 borrowers who are eligible for cancellation under the borrower defense rule. (Id., at page.) Plaintiffs contend that the Corinthian Rule was codified in three documents: () a memorandum prepared by the Department s Office of General Counsel, () a fine action letter prepared by Federal Student Aid s Administrative Actions & Appeals Service Group, and () an The Court understands that the Secretary challenges the very existence of the Corinthian Rule, but for purposes of this Order, the Court will refer to the Corinthian Rule as a shorthand for describing the process that was, for practical purposes, in place before January,.

7 Case :-cv-00-sk Document 0 Filed 0// Page of April document prepared by the Federal Student Aid s Administrative Actions & Appeals Services Group. (Dkt., at pages - (citing Dkt. -, Ex. ); Dkt. (First Amended Complaint), at 0.) In addition, Plaintiffs claim that the Department issued consistent public statements about the existence of the Corinthian Rule. (Dkt., at pages - (citing Dkt. -, Ex. ).) Plaintiffs do not provide the three source documents cited above for this motion because they do not possess them. (Dkt., at 0; Dkt., at page, n..) Instead, Plaintiffs cite to secondary sources to bolster the existence of the Corinthian Rule and to show that the above-cited documents exist. None of the secondary sources refer to the Corinthian Rule by any name, and none of the secondary sources lists the entire set of standards that Plaintiffs claim constitute the Corinthian Rule. (Dkt. -, Ex. ; Dkt. -, Exs. -.) For example, Plaintiffs cite to the report of the Special Master for the existence of the legal memorandum. (Dkt. -, Ex., at page.) That report states: Because Heald was headquartered in and managed from California, the Department looked to California law and determined that Heald s misrepresentation of placement rates constituted prohibited unfair competition under California Unfair Competition Law (UCL). (Dkt. -, Ex., at page.) The Special Master further stated: Accordingly, students that relied on such misleading placement rates when they enrolled at Heald would have a cause of action under state law. (Id.) There is one area of agreement. Plaintiffs and the Secretary agree that, if borrowers signed the attestation forms to show that they had attended the schools on the Lists and that they had relied upon the false statements, the Department did not require them to prove on an individual basis that they were defrauded. (Dkt. -, Ex., at pages -; Dkt., at pages -.) Instead of proving their claims individually, those borrowers could assert their right to relief as part of an expedited system. (Id.) However, the Secretary challenges the existence of the Corinthian Rule. The Secretary states that there was no rule that guaranteed full relief to any borrower who completed the attestation form. The Secretary claims that the Department maintained its discretion to... discharge all or part of a loan subject to a successful borrower claim. (Dkt., at page.) The

8 Case :-cv-00-sk Document 0 Filed 0// Page of Secretary argues that the Department never represented to borrowers that they would be entitled to full relief if they completed the attestation forms. Loan forgiveness on the attestation forms does not specify the amount of forgiveness of the debt. (Dkt. -, Exs., ; Dkt., at page.) None of the documents that Plaintiffs cite state that borrowers are entitled to full relief even if they attended a program on the Lists and completed the attestation form. As a practical matter, though, it appears that, before January,, the Department did provide full relief or total discharges for borrowers who completed the attestation forms. The Secretary does not challenge or refute that factual statement. E. The Department s Actions as of January,. Starting on January,, the Secretary stopped processing claims under the Corinthian Rule. (Dkt. -, Ex., at pages, -.). Delay of Previous Regulations. In June, the Secretary announced that she was undertaking further rulemaking on the issue of the borrower defense rule and delayed the regulations that were set to become effective July,, discussed above. (Dkt. -, Ex..) One news article reported that the Secretary remarked: Under the previous rules, all one had to do was raise his or her hands [sic] to be entitled to so-called free money. (Dkt. -, Ex..). The Average Earnings Rule. a. Preliminary Assessment Using Gainful Employment Metric. The Secretary first reviewed a metric of gainful employment for Corinthian schools and determined that some students who attended Corinthian schools obtained some educational benefit. The metric of gainful employment assesses whether a program has indeed prepared students to earn enough to repay their loans, or was sufficiently low cost, such that students are not unduly burdened with debt, and to safeguard the Federal investment in Title IV. Fed. Reg.. A program passes the gainful employment requirement if students median annual loan payments are less than or equal to % of discretionary income or % of their annual earnings. C.F.R..0(c). The Secretary examined data already within the Department for Corinthian programs and learned that many Corinthian programs had passing scores under the gainful

9 Case :-cv-00-sk Document 0 Filed 0// Page of employment metric. (Dkt. -, Ex., at -.) For example, the Department analyzed the data for Corinthian programs from and found that of them had passing scores under the gainful employment metric. (Dkt. -,.) This preliminary analysis suggested to the Secretary that a more rigorous analysis of earnings was appropriate as a test to provide relief for borrowers who asserted the borrower defense rule. (Id., at.) b. December, Memorandum and December, Press Release. The Secretary claims that the Department quantified the lack of value actually received from the educational program attended by comparing the average earnings of students who attended a given academic program with the average earnings of similar programs at schools the Department determined adequately prepared students for gainful employment. (Dkt., at page.) The Secretary issued a memorandum, dated December,, authored by the Senior Advisor to the Office of the Chief Financial Officer of the Department in collaboration with FSA [Federal Student Aid office] and the Department s Office of the General Counsel (the December, Memorandum ). (Dkt. -, at, and Ex..) The December, Memorandum details the steps that the Department took in determining the new methodology for relief. (Id., at.) The Secretary also issued a press release on December, explaining the new methodology for evaluating borrowers claims (the December, Press Release ). The Secretary stated: This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified. (Dkt. -, Ex., at page.) Instead of developing a new rule as Plaintiffs claim, the Secretary maintains that the Department came to the common sense conclusion that the relief for the successful borrower defense claims should be based on a measure of the actual harm that borrowers suffered as a result of Corinthian s misconduct. (Dkt., at page.) Plaintiffs refer to the Secretary s new process as the Average Earnings Rule. (Dkt. -, Ex..) The Secretary maintains that the weakness of For purposes of this Order, the Court will refer to the Secretary s methodology as explained in the December, Memorandum and the December, Press Release as the Average Earnings Rule.

10 Case :-cv-00-sk Document 0 Filed 0// Page of the previous administration s process for assessing claims of borrower defense is that that process assumed that all Corinthian students received nothing of value, when in many cases graduates received substantial value from their education. (Dkt. -, Ex., at page.) c. Method for Determining Relief under Average Earning Rule. The Average Earning Rule, instead of granting full relief to borrowers who submitted attestation forms for attending schools on the Lists, is a system which provides a percentage of relief based on a comparison of earnings from a specific Corinthian program and a comparable (non-corinthian) school with a passing gainful employment score. (Dkt. -, at, Ex., at pages -.) To compare the earnings from Corinthian schools and comparable schools with a passing gainful employment score, the Department identified Corinthian programs and submitted information identifying the names of, former Corinthian students to the Social Security Administration ( Social Security Administration ) to obtain the data regarding the earning capacities of those students. (Dkt. -, Ex., at page.) Specifically, the Department sent information with dates of birth and Social Security numbers of the applicants who submitted attestation forms for Corinthian programs to claim the borrower defense. (Id.) In return, the Social Security Administration provided the Department with aggregate data regarding the mean and median incomes for each group of students in the Corinthian programs, based on data from. (Id.) The Social Security Administration then provided that data in a form that cannot be associated with, or otherwise identify, directly or indirectly, a particular individual. (Dkt. -, Ex., at page.) The Department refers to the information that the Social Security Administration sends as aggregate earnings information. (Id.) The Secretary claims that the Department exchanged this information under the terms of an agreement between the two agencies: Amended Information Exchange Agreement between the Department of Education & the Social Security Administration for Aggregate Earnings Data (the Gainful Employment Agreement ). (Dkt. -, Ex..) Using the data from the Social Security Administration, the Department compared the earnings under four different formulas, using the mean and median earnings for Corinthian students with the mean and median earnings of students at comparable programs with passing

11 Case :-cv-00-sk Document 0 Filed 0// Page of gainful employment scores. (Dkt. -, Ex., at pages -.) Although the process is more complicated than this general description, the general, relevant parameters are that the Department analyzed the difference between the earnings of Corinthian borrowers and the earnings of students from schools with passing gainful employment scores. If the earning from the passing school was higher than the earning of the Corinthian students, this difference represented the educational value or lack of educational value of the Corinthian program. (Id.) Based on the methodology above, those borrowers in a Corinthian group who earned less than 0% of the earnings of comparable programs with passing gainful employment scores received 0% relief from their loans. (Dkt. -, Ex., at pages -.) Borrowers in a Corinthian group who earned between 0% and 0% of the earnings of comparable programs with passing gainful employment scores received relief in amounts inverse to their earnings. (Id., at page.) For example, if the average Corinthian borrower earned 0% of the average received in the comparable program, the Corinthian borrower received 0% relief. (Id., at page.) All approved borrowers receive a minimum of % in relief. (Id., at page.) The Secretary issued a table in the December, Press Release that shows in graphic form the amount of relief: CCI Earnings as a Percentage of GE [Gainful Employment] Earnings % to % 0% 0% to % 0% 0% to % 0% 0% to % 0% 0% to % % 0% and above % (Dkt. -, Ex..) Amount of Relief The December, Press Release reported that the Department approved,00 pending claims for discharge and denied,00 claims. (Id.) Many of the denials were ones that the previous administration had identified but for which the previous administration had not yet

12 Case :-cv-00-sk Document 0 Filed 0// Page of acted. (Id.) The Secretary advised borrowers that the Department would notify them on a rolling basis as the Department finalized their discharges. (Id.) d. Current Status. As of April,, borrowers filed over,000 claims under the borrower defense rule, and,000 claims remained pending. (Dkt. -, at.). Claimants Discharges under the Average Earnings Rule. Plaintiffs submit several declarations from borrowers who attended Corinthian programs, borrowed Direct Loans, and asserted a borrower defense to obtain relief from repayment. a. Plaintiff Jennifer Craig. Named Plaintiff Jennifer Craig submitted a claim for relief from her student loan under the borrower defense. (Dkt. -.) She attended Everest College in California and relied upon statistics that Corinthian s representatives showed her about the success of graduates in getting jobs in medical insurance and billing. (Id., at -.) She enrolled in the Everest program in April and borrowed $,0 to pay for her education. (Id., at -.) Although she completed her course of study, she did not receive a diploma because Corinthian closed in before she could get her diploma. (Id., at -.) Craig was not able to find work in the area of study medical insurance billing and later learned that, in order to get a job, she needed at least one year of experience that she had not obtained in her practical training at Corinthian. (Id., at -.) Craig submitted an attestation form to the Department for relief from repayment of her Direct Loan, and she received notice that the Department had discharged only % of her Direct Loan. (Id., at,, Ex..) The letter from the Department does not provide a detailed explanation for the determination of relief of only %, but it states: The amount of loan relief that you will receive is based on the Department s assessment of the value of the education that you received. The Department has determined the value of your education by comparing the average aggregate earnings of students who attended yours program(s) of study to the average aggregate earnings of students who graduated from similar programs at other schools that have adequately prepared students for gainful employment, under the standard set forth by the Department s regulations at C.F.R. Part, Subpart Q. (Id., Ex..) There is no more information about the way in which the relief was calculated and no

13 Case :-cv-00-sk Document 0 Filed 0// Page of information about a process of appealing or challenging the decision. The letter states: If you have questions about this notice, please contact the Department of Education at FSAOperations@ed.gov or at (Id.) Craig and her husband have a very limited income or no income, and their expenses for their family exceed their income. (Id., at - 0.) They appear to live, by any definition, in poverty. The existence of loans with the obligation to repay 0% of her Direct Loan causes Craig stress on a daily basis. (Id., at -.) b. Plaintiff Jamal Cornelius. Plaintiff Jamal Cornelius attended a Heald College program in information technology because recruiters told him that he could obtain a high-paying job. (Dkt. -, at.) He began his program in July and borrowed a total of $, in federal student loans and $,000. in private loans. (Id., at.) In, Cornelius began making repayments of $. per month. (Id., at.) Cornelius submitted his attestation form in the summer of and resubmitted it in August. (Id., at -.) Cornelius initially paid the loans but then requested loan forbearance because he was not able to make the payments. (Id., at -.) He learned that the only forbearance program he could seek would capitalize the interest on his loan. (Id., at.) Cornelius is still waiting for a decision on his request for discharge and repayment of his federal loans. (Id., at.) Cornelius has not been able to obtain a job in information technology and is working at Taco Bell in Hercules, California. (Id., at -.) c. Plaintiff Rthwan Dobashi. Plaintiff Rthwan Dobashi attended a WyoTech program in automotive technology in Fremont, California, after seeing advertisements about high-paying jobs. (Dkt. -, at.) Dobashi borrowed $, in federal student loans and $,. in private loans. (Id., at.) He made monthly repayments, even though he was not able to find a job in the area where he trained. (Id., at,.) Dobashi wants to return to school but cannot do so because of the loans he has to repay. (Id., at.) He submitted an attestation form for discharge of his loans and also asked for forbearance of his loans in April. (Id., at,.) The Department notified him that his loans were in forbearance but accruing interest at the rate of $. per month. (Id., at.) He has not received a response from the Department, even though he

14 Case :-cv-00-sk Document 0 Filed 0// Page of submitted his attestation form over two years ago. (Id., at, -.) d. Plaintiff Alina Farajian. Plaintiff Alina Farajian attended Everest College to become a medical assistant. (Dkt. -,.) Everest s recruiters assured Farajian that she could attend even though she had a learning disability and assured Farajian that Everest had a job placement program that could assist her in getting a job. (Id., at,, -.) Farajian also reviewed brochures that listed very high job placement rates. (Id., at.) Farajian finally enrolled in the summer of and borrowed $,000 in federal Direct Loans. (Id., at.) Her mother borrowed $,000 in PLUS loans. (Id., at.) Farajian completed her program and received a diploma, but the only job she was able to obtain in her field of study was a one-month, temporary job. (Id., at -.) Farajian began repaying her loans in but then submitted an attestation form and asked for forbearance of her loans. (Id., at 0,.) Farajian s mother also submitted an attestation form, and her entire PLUS loan was discharged. (Id., at.) On March,, Farajian received a letter from the Department indicating that only 0% of her loan would be discharged. (Id., at.) Farajian is working as a driver for Lyft but makes only $0 per month over her expenses. (Id., at -0.) Farajian is suffering from stress as a result of the loans. (Id., at.) PLAINTIFFS PROPOSED INJUNCTION Plaintiffs seek class-wide preliminary injunctive and declaratory relief to return to the status quo ante. The proposed class of Plaintiffs is defined as: all individuals who borrowed a Direct Loan to finance the cost of enrollment in a program who are covered by the Department s Corinthian Job Placement Rule, who have applied or will apply for a borrower defense, and who have not been granted the full relief provided for by the Rule. (Dkt., at.) Plaintiffs identify the class of borrowers who attended programs in the Lists for the time periods in the Lists. (Dkt. -, Exs. -) Plaintiffs seek an injunction ordering the Department: to cease all efforts to collect outstanding federal student loan debt from Plaintiffs, to ensure the removal of negative credit reporting on Plaintiffs outstanding federal student loan debt, to restore federal student loan eligibility to Plaintiffs in the amount of their nondischarged Corinthian federal student loan debt, to stop applying the Average Earnings Rule to members of the proposed class, and to

15 Case :-cv-00-sk Document 0 Filed 0// Page of (Dkt., at page.) process Plaintiffs claims under the Corinthian Job Placement Rate Rule[.] ANALYSIS A preliminary injunction requires that Plaintiffs establish: () likely success on the merits; () likely irreparable harm absent preliminary relief; () [that] the balance of equities tips in [Plaintiffs ] favor; and () that an injunction is in the public s interest. Doe v. Kelly, F.d, (th Cir. ) (citations omitted). A possibility of irreparable harm is insufficient; rather it must be likely absent an injunction. Am. Trucking Ass n, Inc. v. City of L.A., F.d, (th Cir. 0). Alternatively, serious questions going to the merits and a balance of hardships that tip sharply towards the plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest. All. for the Wild Rockies v. Cottrell, F.d, (th Cir. ). Plaintiffs bear the burden to show that these factors are met. DISH Network Corp. v. FCC, F.d, - (th Cir. ). A. Likelihood of Success on the Merits. Plaintiffs attack the actions of the Secretary under the Administrative Procedures Act (the APA ). The APA allows a court to set aside an agency action only under limited circumstances: To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall -- () compel agency action unlawfully withheld or unreasonably delayed; and () hold unlawful and set aside agency action, findings, and conclusions found to be (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; [or] (B) contrary to constitutional right, power, privilege, or immunity[.] U.S.C. 0. Section 0 of the APA states that agency action is subject to judicial review if the action is a final agency action for which there is no other adequate remedy in a court.

16 Case :-cv-00-sk Document 0 Filed 0// Page of U.S.C. 0. Plaintiffs allege that the Average Earnings Rule is a final agency action that violates 0()(A) and (B). Specifically, Plaintiffs allege that the Average Earnings Rule is unlawful under the APA for three reasons: () the Average Earnings Rule violates (A) because it is arbitrary and capricious, () the Average Earnings Rule is unlawful under (A) because it violates the Privacy Act, and () the Average Earnings Rule violates (B) by violating Plaintiffs Constitutional rights to due process.. Is the Average Earnings Rule a Final Agency Action? The threshold question for any action under the APA is whether the challenged action is the type of action a final agency action which the Court can review. Plaintiffs argue that the Department s abandonment of the Corinthian Rule and adoption of the Average Earning Rule constitute a final agency action that is subject to judicial review. (Dkt., at pages -). A final agency action is one that mark[s] the consummation of the agency s decision-making process and one by which rights or obligations have been determined or from which legal consequences will flow. Bennett v. Spear, U.S., - () (citations omitted). The question of whether an action is final is pragmatic and flexible with the focus on practical and legal effects of agency action. Or. Nat l Desert Ass n v. U.S. Forest Serv., F.d, (th Cir. 0) (citation omitted). The Secretary argues that the adoption of the Average Earnings Rule is not a final agency action and thus not subject to review. The Secretary s argument fails under Bennett. First, the adoption of the Average Earnings Rule marks the consummation of the Secretary s decisionmaking that the Secretary will review and analyze applications from borrowers under a specific plan. Second, legal consequences will follow based on these calculations for those borrowers. See Salazar v. King, F.d, - (d Cir. ) ( The APA does not require that the challenged agency action be the agency s final word on the matter for it to be final for the purposes of judicial review. ). As noted above, the Secretary documented the Average Earnings Rule in the December, Memorandum and in the December, Press Release. (Dkt. -, Ex. ; Dkt. -, Ex..) These two documents show that the Secretary made a final decision about how to evaluate

17 Case :-cv-00-sk Document 0 Filed 0// Page of claims for borrowers who attended Corinthian schools on the Lists and show that the Secretary adopted specific methodology for that evaluation. Thus, the first part of the test is satisfied because the Secretary consummated decision-making. Second, there is no dispute that legal consequences flow from the Department s adoption of the Average Earnings Rule, as the Department has applied and is applying the Average Earnings Rule to determine the amount of relief each borrower obtains. (Dkt. -, at -.) See Salazar, F.d at (d Cir. ) ( The second requirement of the Bennett test is also met, because legal consequences flow from the [Department s] decision not to suspend the collection of the loans of the putative class members. ). Because the Average Earnings Rule is a final agency action subject to review, the Court must then analyze the three arguments that Plaintiffs make to attack the Average Earnings Rule.. Does the Average Earnings Rule Violate the Privacy Act? Plaintiffs argue that the Average Earnings Rule is otherwise not in accordance with law pursuant to U.S.C. 0 and specifically that the Average Earnings Rule violates the Privacy Act. The Privacy Act of, U.S.C. a, regulate[s] the collection, maintenance, use, and dissemination of information by [governmental] agencies. Doe v. Chao, 0 U.S., (0). The purpose is to avoid substantial harm, embarrassment, inconvenience, or unfairness to any individual on whom information is maintained. U.S.C. a(e)(). a. Does the Privacy Act Allow this Type of Injunctive Relief? Before even addressing the merits of the Privacy Act, the Secretary argues that Plaintiffs cannot seek injunctive relief here because the Privacy Act provides a comprehensive remedial scheme that limits injunctive relief to two narrow areas not sought here. In Doe v. Chao, the Court held that the Privacy Act authorizes injunctive relief only in the following circumstances: () to order an agency to amend inaccurate, incomplete, irrelevant or untimely records, or () to order an agency to allow an individual access to his or her records. 0 U.S. at. See also See Cell Assoc., Inc. v. Nat l Inst. of Health, F.d, (th Cir. ) ( the detailed remedial scheme adopted by Congress [in the Privacy Act] would make little sense if a party could seek general injunctive relief.) Neither situation applies here, as Plaintiffs seek to enjoin the

18 Case :-cv-00-sk Document 0 Filed 0// Page of Department from using data compiled as a result of disclosing information to the Social Security Administration and receiving information from the Social Security Administration to make decisions about Plaintiffs claims under the borrower defense rule. Despite this restriction under the Privacy Act, the Supreme Court indicated in two later cases that a party can seek injunctive relief under the APA and not under the Privacy Act to attack a rule that violates the Privacy Act. FAA v. Cooper, U.S., 0 n. (); Doe v. Chao, 0 U.S. at, n.. In Doe v. Chao, the plaintiff sued under the Privacy Act because the Department of Labor used the plaintiff s Social Security number in multicaptioned notices sent to people other than the plaintiff. Id. at. The Supreme Court noted in a footnote that the Privacy Act contains no specific standards for equitable relief because the APA provides those standards. Id. In FAA v. Cooper, the Supreme Court again addressed the issue of the APA s relation to the Privacy Act and stated in a footnote: The [Privacy] Act deters violations of its substantive provisions in other ways for instance, by permitting recovery for economic injury; by imposing criminal sanctions for some violations... and possibly by allowing for injunctive relief under the Administrative Procedures Act (APA)[.] U.S. at 0, n.. The Supreme Court interpreted Doe v. Chao as noting the absence of equitable relief in suits under a(g)()(c) or (D) may be explained by the availability of such relief under the APA. Id. at, n.. Thus, a plaintiff cannot seek injunctive relief under the Privacy Act if that injunctive relief exceeds the scope of the remedies allowed under the Privacy Act, but a plaintiff may seek injunctive relief under the APA if an agency has taken an action in violation of the Privacy Act. The Court therefore finds that Plaintiffs can seek injunctive relief under the APA for a final agency action that violates the Privacy Act. b. Does the Privacy Act Allow Disclosure? The Privacy Act provides: No agency shall disclose any record which is contained in a system of records... to another agency. U.S.C. a(b). As noted above, the Department sent to the Social Security Administration the following: names, dates of birth, and Social Security numbers of the claimants who submitted attestation forms to obtain relief under the borrower

19 Case :-cv-00-sk Document 0 Filed 0// Page of defense rule. (Dkt. -, Ex., at page.) The Social Security Administration then provided the Department with the mean and median annual earnings of the students in aggregate form, without any personal identifying information. (Dkt. -, Ex., at page.) Plaintiffs challenge this exchange of information as a violation of the Privacy Act. There are two acts of disclosure: () the Department s sending of names, Social Security numbers, and dates of birth of claimants to the Social Security Administration, and () the Social Security Administration s sending of aggregate statistical data about earnings to the Department. There is no question that the Department and the Social Security Administration are both agencies for purposes of the Privacy Act. There is no question that, with regard to the first act of disclosure, the Department disclosed to the Social Security Administration a record contained in its systems of records. The Department disclosed to the Social Security Administration the names of applicants with dates of birth and Social Security numbers. Section a(a)() defines a record as any item... of information about an individual that is maintained by an agency... that contains... [an] identifying number... or other identifying particular assigned to the individual. Section a(a)() defines a system of records as a group of any records under the control of any agency from which information is retrieved by the name of the individual or by some identifying number, symbol, or other identifying particular assigned to the individual. When the Department disclosed to the Social Security Administration information about the applicants Social Security numbers and dates of birth from the Department s files, that disclosure violated the Privacy Act unless the Privacy Act exempts the disclosures. The Privacy Act lists several specific exceptions to the prohibition of disclosure of information, none of which apply here. U.S.C. a(b)() (). The exception the Secretary asserts here is the alleged ability to share aggregate statistical data. That term arises only in the Privacy Act in a discussion of a process in which federal agencies may share data in matching programs. U.S.C. a(o). The Privacy Act defines matching programs as any computerized comparison of... two or more automated systems of records... for the purpose of,... or continuing compliance with statutory and regulatory requirements by, applications for, recipients or beneficiaries of, participants in, or providers of services with respect to, cash or in-

20 Case :-cv-00-sk Document 0 Filed 0// Page of kind assistance or payments under Federal benefit programs, or recouping payments or delinquent debts. U.S.C. a(a)()(a). Federal benefit programs include payments, grants, loans, or loan guarantees to individuals. U.S.C. a(). On the face of the description, the Department s sharing of information is a matching program under the Privacy Act. The Department shared information with the Social Security Administration for the purpose of recouping payments or delinquent debts collection of student loans. Matching programs must satisfy several procedural requirements: () the agencies must have entered into a written agreement specifying the purpose, legal authority and cost savings of the matching program, U.S.C. a(o); () the executive department must inform applicants for a federal benefit that matching programs may be used to verify their applications, U.S.C. a(o)()(d); () the agency must notify individuals that they have the right to contest the agency s findings from the matching program before the agency take any adverse action, U.S.C. a(p); and () the agency must report any new or revised matching program to the House Committee on Government Operations, the Senate Committee on Governmental Affairs, and the Office of Management and Budget. U.S.C. a(o)()(a); U.S.C. a(r). Thus, if the sharing of data between the Social Security Administration and the Department is a matching program as defined by the Privacy Act, the agencies must comply with the requirements listed above. It is undisputed that the Department and Social Security Administration did not comply with the requirements above and thus violated the Privacy Act. Probably because the Department did not adhere to the requirements of a matching program, the Secretary argues that the sharing of information by the Department with the Social Security Administration does not constitute a matching program, and the Gainful Employment Agreement specifically disclaims that it is a matching program. (Dkt. -, Ex., at page.) Instead, the Secretary argues that agencies generally may share aggregate statistical data, which is what the agencies did here. Even if the Secretary is correct that the Department s sharing of information with the Social Security Administration was not a matching program and even if the Secretary is correct that agencies may share aggregate statistical data, the Privacy Act nonetheless bars the disclosure.

21 Case :-cv-00-sk Document 0 Filed 0// Page of First, there is no simply no portion of the Privacy Act that states that agencies may share aggregate statistical data. The Secretary has a convoluted reading of the Privacy Act, which relies upon an exception to an exception that creates the alleged ability to share data. But the clear terms of the Privacy Act lay out exceptions and do not include an exception for sharing of aggregate statistical data. But even assuming for the sake of argument that sharing of aggregate statistical data is allowed, the Department did not share aggregate statistical data with the Social Security Administration. The Department sent names, dates of births, and Social Security numbers to the Social Security Administration. The Privacy Act defines a statistical record as information maintained for statistical research or reporting purposes only and not used in whole or in part in making any determination about an identifiable individual. U.S.C. a(a)(). In addition, the express terms of section a(a)()(b)(ii) forbid use of data to make decisions concerning the rights, benefits or privileges of specific individuals. Here, the information the Department disclosed to the Social Security Administration was used to make a determination about a specific individual how much of the borrower s loan that the Department would forgive. And with respect to the Social Security Administration s sending of information to the Department, which did not contain personal identifiers, the disclosure again violated the Privacy Act because the disclosure was made to make a determination about an individual. Thus, even if the Privacy Act allows agencies to share aggregate statistical data, the Privacy Act prohibits the disclosures the Secretary made here to the Social Security Administration because the Department then uses that information to make determinations about the benefits of specific individuals. For the same reason, the Privacy Act also prohibits the Social Security Administration s disclosure of aggregate statistical data to the Department because again, the Department used that information to determine benefits. In conclusion, Plaintiffs have met their burden to show that they are likely to succeed on the merits of their argument that the Privacy Act bars the Department s disclosure of information about applicants to the Social Security Administration and the receipt and use of information from the Social Security Administration. First, the plain language of the statute bars the disclosure.

22 Case :-cv-00-sk Document 0 Filed 0// Page of Second, even if the sharing of information between the Department and the Social Security Administration falls under the exception of the matching program, the Department and the Social Security Administration did not comply with the requirements of a matching program. Finally, even if there is an exception that allows agencies to share aggregate statistical data, the Privacy Act expressly forbids the use of that aggregate statistical data to make determinations about individuals, as here the Secretary did under the Average Earnings Rule. The Secretary simply fails to point to an exception to the Privacy Act that allows disclosure of the specific information about the applicants to the Social Security Administration and that allows the disclosure of the aggregate data from the Social Security Administration to the Department for the Department s use in determining relief for borrowers.. Does the Average Earnings Rule Violate Plaintiff s Due Process Rights? Separate and independent from their arguments under the APA, Plaintiffs contend that the Secretary violated their due process rights by failing to provide them with adequate procedural protections in evaluating their claims for relief under the borrower defense rule. (Dkt., at page.) Plaintiffs allege that they have a property interest in the outcome of their borrower defense application[s]. (Id.) Plaintiffs have a slightly shifting definition of their property rights, as they also contend that they have a right to the relief under the Corinthian Rule, which Plaintiffs claims is full relief or total discharge: Plaintiffs simply request that the [Department of Education] continue to review applications [for relief under the borrower defense rule] under its prior (streamlined and easier to administer) rule[.] (Dkt., at page.) The prior... rule is the Corinthian Rule. a. Do Plaintiffs Have a Property Right? In order to proceed with a due process claim, Plaintiffs must show that they have a protected interest in property or liberty and that the Secretary denied them adequate procedural protections in depriving them of that right. Bd. of Regents v. Roth, 0 U.S., - (). A party does not have a property interest if the party has a unilateral expectation or an abstract desire or need for it. Foss v. Nat l Marine Fisheries Serv., F.d, (th Cir. ). Where a regulation creates the alleged entitlement, the question is whether the benefit is